On 21 April 2014, amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) commenced. These amendments were significant in a number of aspects and principals and contractors alike will now be required to ensure that their procurement and payment systems accord with the requirements of the Act. The four key reforms under the Act are outlined below.

  1. Times for payment

Previously, parties to a construction contract could agree when payment would be made. This is no longer the case due to the imposition of maximum time limits for when a progress payment must be made. These time limits for payment are as follows: 

  • by a principal to a head contractor, 15 business days from the date of the making of a payment claim; and 
  • to a subcontractor, 30 business days from the date of the making of a payment claim.

It is important for principals and head contractors to review, and, to the extent required, adjust accounting practices and payment authorisation procedures to enable payment of payment claims to be made within the maximum time frames required by the Act.

Principals should also consider the impact these shorter payment cycles will have on finance arrangements which typically have longer drawdown and repayment periods to accommodate the requirement for an independent certifier to approve the claims. 

  1.  Removal of requirement to endorse payment claim

A further amendment is the removal of the requirement that a payment claim identify that it is a 'Payment claim pursuant to the Building and Construction Industry Security of Payment Act (NSW) 1999'. 

This will mean that provided the payment claim identifies the construction work to which it relates (or the related goods and services), and includes the claimed amount, it will be a claim under the Act, thereby triggering the requirement to issue a payment schedule. Principals will need to be alert to such claims and ensure that they respond with a payment schedule within 10 days or risk placing themselves in a detrimental position during any subsequent adjudication. 

This change will have a significant impact on expanding the number of claims that can be made under the Act. Arguably, a claim for a variation may be a payment claim under the Act and therefore enliven the jurisdiction. 

  1. Supporting statement

Whilst payment claims no longer need to be identified as being under the Act, head contractors are now required to provide a 'supporting statement' in a form prescribed by the Building and Construction Industry Security of Payment Amendment (Supporting Statement) Regulation 2014 (NSW). This includes a declaration that all subcontractors have been paid all amounts that have become due and payable in relation to the construction work concerned. Failure to submit such a supporting statement is an offence under the Act and attracts a maximum penalty of $22,000. 

Notably, a failure to serve a supporting statement will not necessarily invalidate the payment claim to which it relates, so a principal should still respond to a claim in accordance with the Act even if it does not attach a supporting statement. The supporting statement relates to the entitlement to be paid, not the entitlement to make a claim. 

  1. Retention money trust accounts

As a result of the amendments, the Act now provides for the introduction of regulations under which retention monies are to be held by head contractors in a segregated trust account. At this stage, however, the Act does not provide for any detailed regime for the creation of a statutory trust for retention money. Instead, it simply lays the foundations for such a scheme to be established through regulations after consultation with industry stakeholders. So far, there has been no indication as to when such regulations may come into effect.

Who will these amendments affect? 

The provisions set out above will only affect construction contracts entered into after 21 April 2014. Principals should ensure that the payment clauses of contracts going forward comply with the timing regime set out in the Act and should be alert to any payment claims to be sure they are responded to appropriately. Exempt residential construction contracts will still not attract the Act’s operation and any construction contracts entered into before 21 April 2014 will not be affected.